Meaning and requirements of substantive procedure
Substantive procedures refer to the audit procedures used to detect material misstatements at the identified level, including detailed testing of various types of transactions, account balances and disclosures, as well as substantive analysis procedures.
Substantive procedures should also include the following audit procedures relevant to the completion phase of the preparation of the financial statements:
Reconcile or reconcile the information in the financial statements with the accounting records on which they are based;
Review significant accounting entries and other adjustments made in the preparation of financial statements.
Because of the inherent limitations of internal controls, CPAs should implement substantive procedures for all material categories of transactions, account balances, and disclosures, regardless of the outcome of the assessed risk of material misstatement.
Substantive procedures implemented for particular risks.
If the risk of material misstatement at the level of assessment is considered to be a special risk, the certified public accountant shall implement substantive procedures specifically for that risk;
If only substantive procedures are implemented for particular risks, the CPA should use the detail test, or a combination of the detail test and the materiality analysis procedure, to obtain sufficient and appropriate audit evidence. In other words, the substantive analysis process cannot be implemented alone.
Substantive procedures for special risks.
The combination of possible procedures to be implemented and their feasibility include:
Control testing, detail testing, substantive analysis, comprehensive plan, feasible.
Control test, detail test, comprehensive plan, feasible.
Control testing, materiality analysis, comprehensive program, feasible.
Detail testing, substantive analysis, substantive solutions, feasible.
Detail test, substantive plan, feasible.
Substantive analysis, substantive solutions, not feasible.
Control testing, without this scheme, is not feasible.
There are two scenarios in which this is not feasible:
Only control tests are done, not substantive procedures;
When only substantive procedures are done, detail testing is not included.